E-Sourcing Forum » Phased Approaches for Larger Spend Analysis Projects

Phased Approaches for Larger Spend Analysis Projects

January 21st, 2010 at 10:00am David Bush - Iasta

Numerous larger organizations, such as international or holding companies with disparate global operations, often have difficulty getting an organizational Spend Analysis project launched, primarily due to the independent operations within each company in the portfolio. A typical, comprehensive Spend Analysis project would address all Spend. This is typically all AP, PO, P-Card, and Expense data across all sites and systems. These companies would argue that opportunities to better leverage spend do exist, but the challenge of coordinating efforts across disparate operating units has historically slowed adoption within these firms. For these types of situations, a phased approach to Spend Analysis is a solid deployment method that enables the company to start identifying and executing on savings opportunities while gradually incorporating other business units. Outlined below are the most common examples:

Alternative Approach 1 – Accounts Payable Focus: Extracting data out of the Accounts Payable systems is generally a straight-forward process. While A/P alone does not provide the same level of insight as does the Purchase Order/Expenses/P-Card data, it often reveals many savings opportunities that can be addressed immediately. This approach can be further simplified by applying a reverse Pareto principle – only extracting the top 80% of the A/P spends. As sourcing opportunities are identified at this high level, they can then be further broken down during the sourcing initiative and additional data collected as appropriate.

Alternative Approach 2 – Geography/Operating Unit Focus: Some organizations decide to focus on an area they can control, such as a particular geography or business unit, and collect more detailed data for that area. In this manner there are fewer people involved and they can get very detailed visibility into data and sourcing opportunities for the area in scope. The data can then be extrapolated to the entire company as targeted sourcing efforts are conducted.

Alternative Approach 3 – Category Focus: Some organizations identify a top 10 list of Spend categories that they know can produce cost savings, and then collect as much data as they can from those sites having a good amount of these Spend categories. (Areas such as Ocean Freight, Print, Office Supplies, Telecom, Temp Labor, etc.) The data is then quickly extracted from the overall data set and analyzed for the specific perceived opportunities. Only the Spend for those initiatives is focused in the data classification process.

Alternative Approach 4 – A Combination of the Above: Invariably, a Spend Analysis project comes down to people and executive sponsorship. It has been proven over and over again that savings exist well beyond the cost of any Spend Analysis project (10X to 50X ROI). But typically it is hard to get sponsorship organization wide, as this usually requires the involvement of the CFO and even the CEO. The CPO, or Director of Strategic Sourcing, has a span of control (and budget) that they can use to get some form of Spend Analysis project started. As even small Spend Analysis projects can produce large savings, getting something started and generating a quick ROI can be leveraged to look further and deeper across the organization. Those initial savings can be invested forward to get more approval to conduct more projects with larger scope. We find this is very common to exercise the largest span of control a person may have who believes in the value of Spend Analysis done right, and they go after the corresponding savings that can be achieved.

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Entry Filed under: Functionality, General, Spend Analysis

3 Comments Add your own

1. Tweets that mention E-Sou&hellip | January 21st, 2010 at 1:45 pm

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2. Carlos Ortiz | January 21st, 2010 at 9:00 pm

It is true that high level sponsorship is required for a successful spend analysis exercise. Buy you don’t mention why. And the reason is that any meaningful spend analysis project requires a titanic effort in collection, cross-referencing, cleaning and compilation of disparate sets o data. This effort almost always requires heavy investment in resources, external or internal, to accomplish a good outcome. Companies jumping into this type of exercise need to be completely involved or not at all, otherwise they will not get a rich data set to draw conclusions from.
3. Rod True | January 22nd, 2010 at 10:49 am

All the above approaches are real world examples of how some companies started Spend Analysis projects and achieved significant savings, and then involved more and more of the organization as they built upon that success. We worked with one company who took a category focus (Alternative # 3) and saved $10 million on Freight and Metals alone. This then paid for and launched Spend Analysis and sourcing across many more categories. It does not have to be all or nothing. This blog suggests a few proven ways to target savings efforts in the absence of an organizational-wide effort.

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